Rural-Urban Divide, Tax Havens & More Renewables

National anthem posture is capturing all the attention but news far more impactful for the future of American football emerged this week. Scientists now believe they can diagnose chronic traumatic encephalopathy (CTE) in living people where before one could only know that someone had the disease by doing an autopsy. But if doctors will be able to test for CTE in living football players, and if CTE is as prevalent in players as autopsy data indicates, then isn’t American football in big trouble? In the future won’t part of your teenage football players routine physical include testing for CTE? If the test indicates they have CTE, presumably the player would not be cleared to play high school football, or later college football or after that in the NFL. It’s one thing for we fans to push to the corner stories of players determined to have CTE after they die. It’s another for parents, friends, doctors, coaches and fans to confront living athletes we root for who have been diagnosed with CTE. At the least, athletes at a younger age would turn to other sports diluting the talent in football. Of course, sports such as soccer and hockey are also vulnerable to the CTE plague (ironically the fake sport of wrestling is especially prone to the real health problem of CTE). Obviously this means cricket will be the dominant sport of the future. In the meantime we take a knee to examine more closely the rural-urban divide in China, who uses tax havens the most and the emergence of renewable energy in, well, emerging economies. It’s this week’s International Need to Know taking headers for the goal of international knowledge and data.

Without further ado, here’s what you need to know.

The Rural – Urban Divide

In elections in the UK (Brexit), the U.S., Germany and elsewhere we have seen rural and urban populations vote very differently. China doesn’t have democratic elections but it too has a rural-urban divide. The massive migration from rural to urban in China helped lead to the largest reduction in poverty in world history. But even today, a large percentage of the Chinese population is rural, impoverished, and as an article in Science makes clear, has a huge education deficit. More than 70 million Chinese still live on $1 per day. That’s far fewer than 20 years ago but still a lot of people. More worrisome is the lack of education in rural communities. According to Science, “a third or more of rural kids don’t complete junior high school in China.” The article also points out that “many parents who migrate leave children behind in poverty who tend to leave school early, eat poorly and have little cognitive stimulation in the first years of their lives.” This leads to lower IQ scores among rural Chinese students. Scott Rozelle of Stanford calculates that when including “poor, neglected urban children, 400 million future working age Chinese are in danger of becoming cognitively handicapped.” And they will live in an age that will demand more mental acuity not less. China recognizes the problem and is trying to take steps to improve the situation. If they don’t succeed, they will have a challenge making the leap from mid-income country status to high income. More on this next week.

Who Uses Tax Havens the Most

You may remember a couple of years ago when the Panama Papers leaked information about offshore wealth of a variety of leaders, dictators and wealthy miscreants. A new economic paper goes beyond leaks and tries to quantify which countries’ wealthy are most prone to storing their wealth overseas. As you see in the graph below, it is a who’s who of badly run countries, corrupt countries and oil wealthy countries, in some cases all at once. The UAE, somewhat surprisingly to us, tops the list with Emiratis overseas wealth totaling over 70% of the countries GDP. Next comes that ode to socialism, Venezuela, and then everyone’s (or at least the current U.S. President’s) favorite world troublemaker, Russia. The paper estimates that overall about 10% of the world’s wealth is stored in offshore accounts. There are, of course, many sound reasons for someone to store their wealth offshore but which countries wealthy are most prone to storing their wealth outside the country can also be telling. The researchers also used this data to recalculate inequality in countries since previous research focused on tax records and it is likely the wealthy have found ways to evade such taxes, including by storing wealth offshore. They find that when including such data “Offshore wealth has a larger effect on inequality in the U.K., Spain, and France, where, by our estimates, 30%–40% of all the wealth of the 0.01% richest households is held abroad. It has dramatic implications in Russia, where the majority of wealth at the top is held outside of the country.” Technology and globalism has made capital more fluid. It’s likely we’ll see offshore wealth increase in the coming years with effects both good and bad.

Climate Continues to Improve for RenewablesDespite policy headwinds in the U.S, the climate for renewables continues to improve. Moody’s Investors Services has a new report out showing that decreasing prices for renewable energy generation, and crucially also for storage, are driving the market and propelling emerging and developing markets into the lead. The head researcher on the report, Swami Venkataraman, reports that “Emerging markets are a key market for growth in renewables, with countries such as China and India leading the charge as new renewables become competitive with other sources of power even in developing nations.” Moody’s research shows that developing countries now have total installed solar capacity of 272 GW and wind capacity of 307 GW which is 53% and 51% respectively of total world capacity. China by its sheer size but also by its aggressiveness in this sector, accounts for a big share of this capacity, but Moody’s notes that Latin America and the Middle East are both rapidly increasing their capacity. The progress in storage is perhaps most important. Venkataraman notes that “benchmarks in storage projected for 2020 have already been reached.” As we have noted before, we are headed for a cleaner world regardless of current policy debates.

Debt is Different, Energy’s Future & the Wettest Countries

We’ve been hearing complaints about kids ever since we were one. From colleagues we hear complaints about millenials and what a pain they are. And yet, in our anecdotal experience, they seem much more mature, wise and put together than we ever were at their age. So while scanning the Internet stuck on a couch not wanting to wake the cat napping on our lap, we were pleased to come across a study backing up our anecdotal evidence. Apparently for the last 50 years scientists have been administering the “marshmallow test” where children are told if they wait 15 minutes, they will be given two treats. If they cannot handle being that patient, they only get one. This year’s testing results show,  “…kids these day are better able to delay gratification than they were in the past, corresponding to a fifth of a standard deviation increase in ability per decade.” The scientists do not know why there has been an increase in the ability to delay gratification.* In one of our favorite sentences of 2017 they write, “Unlike IQ tests changes**, where schools and textbooks have routinely engaged in teaching to the test, we are unaware of any formal training in the marshmallow task for schools.” So even as we search for schools providing formal marshmallow training, gratified that our cat finally awoke, we note that not all debt is the same, examine coal usage forecasts and soak you with the wettest countries in the world. It’s this week’s International Need to Know, gratifying your interest in the world around us without delay.

*We guess the elimination of lead in the environment had some role to play.

** Generational increases in IQ scores, the so-called Flynn effect, have been going up for decades.The kids are smarter than us

Without further ado, here’s what you need to know.

All Debt is Not the Same

We’ve recently seen a variety of visual depictions of debt around the world. For example, howmuch.net displays sovereign debt in G20 and OECD countries in a nice easy to read map (see below). For your reading pleasure below the map we list the top ten countries with the worst debt to GDP ratios in the world. Japan continues to top that list. Not all debt is the same, however. People have been predicting Japan’s debt doom for nearly two decades now. So far Japan has avoided financial catastrophe, partly because most of the debt is owed to themselves, not to other countries. It’s also worth noting that at least in the last couple years, Japan’s debt has stabilized a bit, halting the rapid increase in debt of the last decade. Greece’s debt (they’re number 2) has obviously caused them problems because they owe other countries, have been bailed out repeatedly and the EU (Germany) have shown no inclination to forgive Greece’s debt. What about the flipside of high debt? Estonia, Saudi Arabia and Russia have some of the smaller ratios of debt to GDP. I’d be willing to buy an Estonian ETF but I’d be far more leery of doing so for Saudi Arabia and Russia. There is no Jeffersonian ideal of debt–it is not all created equal.

The Future, Mr. Gittes

We continue to be less worried about America’s policy retreat on climate change measures than others (which is not to say we aren’t worried). Technological advances continue to point towards a cleaner future. The Energy Information Administration (EIA) recently released their 2017 International Energy Outlook. The report notes that world coal usage began levelling off in 2010. Petroleum usage continues to go up at a steady rate and natural gas at a somewhat faster one. Renewables, on the other hand, has seen a huge increase. That’s the past; the EIA also attempts to forecast the future.  What’s strange is that the organization’s forecast basically maintains current trend slopes. This is generally a smart forecasting technique–things often don’t change much (inertia is the third or at worst fourth most powerful force in the universe). But when technology is improving rapidly as it is in the renewables sector, we expect the Energy Information Administration’s forecasts to be way off. As renewables continue exponential growth and storage problems are solved we expect coal usage to not just level off but decrease. In fact, compare EIA’s forecast from 2013 to today’s reality (see second chart below) where they radically overestimated growth in coal usage. Remind us in four years to investigate how today’s EIA forecast fares (when this missive will be delivered via augmented reality technology).

When the Rain Comes

As you know, the worldwide headquarters of INTN is located in the great Pacific Northwest of the United States where we are known for our rain (we hope someday to open a satellite office in New Orleans). After a remarkably dry summer in which we saw nary a drop for more than two months, the advent of autumn has brought a renewal of our drizzly weather. As we wipe the mist from our glasses, in honor of the return of the rains, we present to you below the wettest countries in the world courtesy of the World Bank. To our surprise, Colombia is the wettest country in the world with 3,240 mm of rain on average per year. But Papua New Guinea is close behind, followed by Indonesia and Malaysia. Peruse at your leisure as we prepare a shipment of bumbershoots to these countries.

  

Germany’s China, Ag in Netherlands & Less Terrorism

There is a theory of the end of the universe that eventually all matter and energy will evolve toward a state of inert uniformity. Everything in the universe will be the same forever and ever. We were reminded of this when Marginal Revolution pointed us to a new paper that posits it is getting harder and harder to generate new ideas. Are we entering the human equivalent of an inert universe–no more development, very few new ideas? The paper notes that “Across a broad range of case studies at various levels of disaggregation, we find that ideas–and in particular the exponential growth they imply–are getting harder and harder to find.” In other words, the iPhone X may be as good as it gets and it’s really no improvement over past iPhones, or Galaxies for that matter. Perhaps we are entering a new dark age of innovation, a modern medieval lack of progression. We have no idea if the paper is correct or even if it is if we’re just on a temporary bridge of notion nothingness about to cross into a lush jungle of new ideas. But even as we search for LED light bulbs above our head, we present an idea of why Germany was less economically shocked by China, why a small country feeds so many of us and why today’s terror attacks scare more people. It’s this week’s International Need to Know, energized to bring you international data and information that matters.

Without further ado, here’s what you need to know.

Germany Hides the China

Depending on the study, the U.S. either lost lots of jobs to China or the effects were fairly localized (but almost all the studies agree that any loss of jobs to China is in the past). Either way, Germany appears to not have been affected as much by the rise of China. Why is that? According to a new study it is because of three reasons: a) the opening of Eastern Europe exposed Germany to trade adjustments previous to China’s rise–by the time China was becoming a dominant exporter, Germany’s adjustments had already taken place for low wage competitors; b) the development of Eastern Europe provided Germany new export markets which balanced out new competition from China; and c) Germany’s penchant for high quality products insulated them a bit from Chinese competition. The paper is relatively convincing but we should remember that Germany is facing the same rate of manufacturing job loss as other countries as we pointed out many months ago (albeit starting from an initial higher level). We re-post the graph below as a reminder.

BTW, in the chart you can see the steep decline in German manufacturing jobs from 1991 (when the Soviet Union fell) to 1997.

Country Changing Name to Aglands

The United States has long been the breadbasket to the world (horrifying gluten-deniers the world over we guess). But the second-largest exporter of agricultural products might surprise you. It’s not a large geographical sized country like China, Russia or India. It’s the relatively small Netherlands. The Netherlands exports $94 billion worth of agricultural products despite being only the 131st largest country in terms of land area. This country continues its long international trading tradition but now as agricultural exporters–they are the largest exporters of potatoes and onions, and second-largest exporter of vegetables overall. In fact, according to National Geographic, “More than a third of all global trade in vegetable seeds originates in the Netherlands.” The enterprising country has accomplished this through technology and efficiency. The Netherland’s devotes more than half the nation’s land area to agriculture and horticulture. In addition, as National Geographic notes, “Banks of what appear to be gargantuan mirrors stretch across the countryside, glinting when the sun shines and glowing with eerie interior light when night falls. They are Holland’s extraordinary greenhouse complexes, some of them covering 175 acres.” With the world’s population continuing to increase, at least for now, we’re fortunate that Netherland’s scientists and leaders are also working to export their agricultural methods to other countries.

Largest Agriculture Exporters

No, Really, Things are Not That Bad

In our continuing bid to remind people (including ourselves) that things are not as bad as we think, we present the latest data on terrorism deaths in Europe. You’re probably thinking that’s not a very cheery topic but look at the chart below. Yes, terrorism deaths in Europe spiked the last two years (though so far 2017 is trending less deadly) but deaths by terrorism are still well below the level of the 1970s and 80s. But, who is doing the killing has changed. And today’s ubiquitous media means terrorist attacks get an all encompassing, 24-hour, stories on every media platform treatment. These two changes might be why people today are feeling more, well, terrorized, than they once did. But, really we are much safer today than we were 30 years ago. Now, we should not be complacent, each year villains have more access to more powerful weapons (we’re writing a whole novel about this), but at least for the moment, the world is safer than it was in the broad lapel 70s and steep shoulder pad 80s (hey, fashion might be better too!).

 

Mexico-China, Hurricanes Less Deadly, Best Halal Food

“As little as possible,” Jake Gittes responds when asked what he did as a cop in Chinatown. This quote from our favorite movie came to mind last weekend. We were in our front yard when we heard a cat meowing. We looked down and saw a small, cute, black and brown feline rubbing against our legs. We reached down to pet it and discovered it was skin and bones, which made us think it was either lost or abandoned. The cat followed us onto our porch. It was still on the porch when we returned from a bike ride. The next day while working on a construction project in our backyard, it was a constant companion, less scared of the power tools than we were. So we posted on Nextdoor.com (a website for busybodies, it is the world’s fifth worst invention, still a few spots behind Twitter which, as you know, is the world’s worst invention) and asked if anyone was missing a cat. A woman named Jan texted us while we were at a baseball game that her cat has been missing since July. She asked if she could go into our front yard to see if this cat was hers. We said sure and half an hour later Jan texted us saying it was not her cat but she had taken it back home with her and was going to take it to the vet to see if it was microchipped. This seemed a bit presumptious to us–others in our household referred to it as kidnapping. We got home from the game and saw a Mom and daughter walking down the street with flashlights, looking under cars. We asked if they were missing a cat. They were. We showed them a photo of the cat we had found and it was indeed their cat. It turns out the cat was skin and bones because she is 18 years old, not because she was lost or abandoned. We then explained a woman on Nextdoor.com (an evil, evil site) had taken, catnapped, their cat. We texted Jan who embarrassedly came right over to return the cat to its rightful owner. The poor, ancient cat had apparently been very distraught at Jan’s house–of course, the whole catastrophe could have been avoided. Forget about it Jake, it’s Cattown. Even as we miss our feline friend, we meow over Mexico-China relations, scratch and crawl through historic hurricane data and purr over where the best Halal food is. It’s this week’s International Need to Know, a dog’s world of information about our cat-ruled world.

Without further ado, here’s what you need to know.

Walls, Bridges, Belts, Roads!

Apparently BRICS aren’t being used to build walls anymore. Mexico’s President Enrique Pena Nieto was in Xiamen, China (one of the more beautiful cities in China we’ve traveled to) for the Brazil-Russia-India-China-South Africa (BRICS) summit and also met individually with President Xi. At this bilateral meeting, Xi said, “Both sides should synergize their development strategies, make the most of their respective advantages to build a supply chain that links China and Mexico and radiates to the surrounding regions.” Xi also welcomed Mexico’s involvement in the Belt and Road Initiative, an initiative to build trade routes along the old silk road. That road is now stretching across the Pacific apparently. We’ve noted China’s increasing engagement around the world, now they are talking intimately with the United States’ southern neighbor, talking about belts and roads instead of walls. For Mexico’s part, China is its third-largest export market and second-largest importer though Mexico’s trade with China is many magnitudes smaller than its trade with the U.S. Nonetheless, there are many reasons for Mexico to pay closer attention to China, even as its northern neighbor distances itself.

Strong Winds of Change

We have maintained in this space that the world is far better than it used to be and we stand by our stance despite worrying trends (which we have also covered). We recently watched with worry when during Hurricane Harvey a friend posted on Facebook a photo of the water lapping up towards his front door. He thankfully evacuated safely and his house was far less damaged than others. We watch with worry as Hurricane Irma* devastates countries to the south of us and bears down on Florida. But, we also remember that hurricanes are not as deadly as they once were despite the fact that climate change may be making them stronger. Below you see a list of the world’s deadliest hurricanes, almost all taking place more than 50 years ago. Economic and social growth have given societies better tools to deal with natural disasters. We hope, even in the midst of worrying trends, even as some retrench efforts to confront climate change, that the world will continue to grow economically and socially in the future so that tomorrows will continue to be less deadly than todays.

*A hurricane named Irma immediately conjures up memories of the soul queen of New Orleans, Irma Thomas, singing It’s Raining live at French Quarter Festival in 2013. We were soaked, we were happy. Our best wishes to all affected by Hurricane Irma. 

Where to Travel for Halal Food?

Years ago we were working with a business group from Abu Dhabi. We took them out to dinner to a restaurant that served halal (permissible food and drinks in Islam). However, they had arrived much earlier in the day and the hotel they were staying at was located nowhere near halal friendly restaurants. Needless to say they were quite hungry at dinner. So if you’re Muslim, where are the most Halal/Muslim friendly places to visit? As it turns out, Mastercard and CrescentRating collaborated to create an index of such places. Not surprisingly, the top ten is chock full of Muslim countries or those bordering such countries (we’re looking at you, Singapore). Interestingly, the U.S. ranks above India, and both are well above China and Russia. Below you’ll find the top 20 and at the link the full list for your hungry perusal.